Money management is the answer to getting your financial life in order. But it is easier said than done. You will need a full grasp and deep understanding of your financial state, which can be challenging. Balancing your income from different bank accounts, credit cards, loans, individual retirement accounts (IRA), and the like can be overwhelming. But, just like everything, to successfully manage your personal finances, it’ll take commitment and keen understanding. Even those who are already in control of their finances have to go proper financial management. And the sooner you do this, the better.
That said, these are the ways of managing your finances properly:
Make a Financial Layout
The first and essential step in managing your finances is to create a financial plan. It should consist of multiple steps or milestones, such as making a monthly budget, spending plan, investment, how to get out of debt, retirement, emergency fund, and so on. It can be as detailed as you want it to be. Your financial plan will save you from making financial decisions based on fear, thus helping you take control of your financial situation.
Consolidate Your Debt
Aside from managing your expenses, you also need to manage your debts. Don’t feel bad about having one because most people do. What you want to avoid is high-interest debt. Look for a way to consolidate them and try getting the lowest interest rate there is. If you find yourself only making the minimum required payment, sending in late payments, making salary advances to pay the bills, or having a credit card that is already close to its card limit, you have all the warning signs of having incurred too much debt. Take control of your debt by negotiating with a creditor like Money Trumpet about a payment plan, combining all unsecured debts, and paying them in one bill, and so on.
Create a Budget and Stick to It
The efficiency of your financial management plan highly depends on your ability to budget. It gives you clarity and transparency over your finances, which are crucial when managing your money, not to mention that budgeting is one of the biggest tools that’ll help you succeed. A budget is where you create a spending plan, track your income, determine your expenses, and strategize how and where to allocate your money over the coming months or even years. This can work for both your short-term and long-term financial goals.
Without a budget, you can end up spending your hard-earned money on things that won’t offer much in the future. But when done right, it can pull you out of debt, stack your emergency fund, allow you to gain significant savings in the future, and ultimately help you spend less than what you earn.
For people with partners, in order for your budget to work, both parties should work together. The same level of commitment shall be required from you and your spouse for this to be effective. Aside from that, it’ll keep you away from any money-related arguments. Remember, the success of the rest of your financial plan lies on your budget. It’s the key that’ll give you control over your financial future.
Manage Your Expenses
Everyone, if not all, has an idea of their monthly expenses. This is important to note when you have a financial plan. Track all the expenses you incur in a one-month period; gather all your receipts from the grocery, bills, utilities, and all the expenses paid off by cash or credit card. Add them all up, both variable and fixed, and you can identify your total amount. It’s a small problem with an easy solution. The real challenge is slashing unnecessary expenses. Review your list and remove or cut off some of your expenses that don’t affect your life to an extent.
Live Within Your Means
It may come as a surprise but many people know how much their full monthly income is but have little to no knowledge about their exact monthly expenses. This doesn’t need a whole lot of work, though. All you need is to deduct your total expenses in a month from your monthly income, and that determines whether you are living within your means or not. If it comes out negative, that only means you spend way more than you make. From that, come up with an action plan and execute it.
If the result from your deduction comes out positive, then you are just doing well. However, you still need to come up with a plan for what you are going to do with that extra money. As soon as you get a firmer understanding of your cash flow, you can manage to take additional steps that will lead you to care for your finances best.
Managing your finances has no shortcut. There is no formula or magic trick either. But having a clear objective and knowledge about your finances can help you out in making a workable plan until you won’t have to worry about your money anymore.